To produce it yourself or to let someone else?

Whether you continue to take on logistics activities on your own ("Make") or outsource to external service providers ("Buy"), it's better not to decide  based on a hunch. Calculate the matter using a better way. At Lila Consult, we have developed a make-or-buy analysis for both manufacturers and retailers, which can serve as an objective basis for decision-making. In addition to our consultancy knowledge about the relevant influencing factors, the tool also incorporates experience from our Lila Operating division. There, we work as a logistics service provider in-house or ex-house (i.e. in our own logistics centers, for numerous customers.

What can the Make-or-Buy Analysis do?

It is crucial whether the complete or partial outsourcing of logistic tasks improves the value added in your company. The make-or-buy analysis enables a cost-effectiveness comparison between existing or optimized logistics and the acceptance of logistics by an external service provider. The focus is on three questions: Does the know-how of the external service provider increase the efficiency of the logistics processes and thus the productivity? Is it possible to reduce personnel costs via the external service provider even though other tariffs and working time regulations apply in the logistics industry? Are the conditions for industrial trucks, such as pallet trucks, forklifts, etc. improving? In addition to cost, desired goals can be considered (e.g. the restructuring of a company, its repositioning in the market, or the desire for more flexibility in resource use, can be incorporated into the analysis).

How do we do the Make-or-Buy Analysis?

At the core, it's about calculating the potential in your logistics. On one hand, we screen the processes, the systems, and the organization of the logistics in your company, identify the potentials, calculate the investment requirements for their improvement, and carry out a cost-effectiveness analysis. On the other hand, like the classic Make-or-Buy Analysis, we present an outsourcing scenario with the corresponding potential from value-for-money analysis. This will clarify whether outsourcing could pay off for you, what the potential is, and which risks and chances exist.

The following model has been proven in practice:

Step 1: Preparation

First, with your help, we define which logistics processes should be considered in the Make-or-Buy Analysis and which focal points of analysis should be chosen. A distinction is made between classic logistics processes (transport, warehousing, shipping, import, export and customs clearance), and additional logistics processes (picking, provision, packaging, returns processing, and inventory). The determination is necessary to decide outsourcing levels and the operator model.

When setting up the project team, you should include executives, experts from operational logistics and project costing but experts from associated fields such as production or human resources as well. However, the workers’ council, too. In a kick-off meeting, objectives and benefits should be discussed, agreed upon and a project plan set up.

Step 2: Data Collection

The quality of the analysis results depends on the right data. Therefore, all the relevant information must be collected - including both data on staff and logistic systems (e.g. forklifts or warehouse management and whether they should be taken over or provided by an external service). A questionnaire helps to clarify the specific logistics situation in your company. In doing so, we differentiate between essential questions, the answers to which are obligatory and purely informative.

Essential Questions:

  • What is the employee's gross salary and what is it composed of?
  • How many hours a week does your employee work?
  • How many hours do you pay?
  • Are there any incentive pay agreements or bonuses?
  • How many days of vacation do employees receive?
  • Which collective agreement is valid for employees?
  • What is the average length for sick leave?

Informative Questions:

  • Are there company-specific working hour regulations?
  • Does a company suggestion system exist?

Step 3: Analysis

The data is evaluated and analyzed. The advantage of Müller - Die lila Logistik: We can validate the results of the Make-or-Buy Analysis through a collection of benchmark values that we have collected and continue to collect on a daily basis in various processing  sectors for our clients.

At the end, there is a clear comparison between the logistics costs in the company and those of an external service provider. For example, in terms of employees, the total cost of ownership of the company is compared to the total staff cost of the external service provider. The commonly lower costs of the service provider are explained as follows: Due to more flexible working time regulations, they can do the same job with fewer staff. Their expert know-how also results in process optimization that further reduces personnel expenses. The goal of outsourcing, however, should not be staff savings. In times of skilled worker shortage, it is more important to use employees elsewhere or to increase productivity while maintaining the same number of employees. 

Step 4: Total Cost Comparison

In the overall cost comparison, it's important to remember that a decision in favor of outsourcing generally entails a transfer of business in accordance with § 613 a BGB. This means that the affected employees of your company change to the workforce of the external service provider on a key date. As a result, severance payments or other compensation costs to be remunerated may be incurred. These should also be included in the overall cost comparison. Only then can you have number transparency and can decide for or against outsourcing.


When will outsourcing be worthwhile for you?

Making a blanket statement without getting an idea of the overall situation of your specific company is difficult. With the Make-or-Buy Analysis from Müller – Die lila Logistik, we can support you in your entrepreneurial decision-making. 

As a guide, we want to share with you our experience from successful outsourcing projects. The cost savings depend on the project level: In the go-live phase, the transfer of business according to § 613 a BGB usually leaves it at the existing actual cost situation. In Step 1, you can expect a cost reduction of 10 to 20 percent by increasing efficiency and reducing costs. In Step 2, the costs can be further reduced by another 10 to 15 percent through other working hours, vision systems, and compensation models. All in all, you can and should expect a cost reduction between 20 to 35 percent for a long-term cooperation.

We would be happy to show you an example of one of our projects to outline when, how, and to what extent outsourcing can contribute to added value. Simply download the white paper on this page. 

If you want to know more about outsourcing and your potentials or have suggestions on the topic, we'd be happy to hear from you.